Fiat currencies, as well as digital currencies that are based on blockchain technology, increase and decrease in value. Every medium of exchange is affected by the forces of supply and demand, which may work hand-in-hand with other factors to affect the value of the fiat currency like the US dollar or the digital currency such as Bitcoin.
How does the value of a cryptocurrency such as Bitcoin or others increase? For the likes of Bitcoin, does its maximum supply of 21 million affect the value of the cryptocurrency? With the above statement, it means that only 21 million bitcoins can exist around the world. The bitcoin mining process can only churn out 21 million bitcoin.
What makes Crypto go up and down?
Different factors affect the value of cryptocurrencies like Bitcoin, and they will be discussed at length.
• Supply and demand of crypto
Blockchain technology is based on the concept of decentralization, where transactions carried out by different participants can affect the supply and demand of the crypto.
The prices of digital assets tend to change because of the interaction of the forces of supply and demand. When the transactions that an exchange gets are mostly demand for coins like Bitcoin, the value of that cryptocurrency may increase.
On the other hand, if exchanges are flooded with the supply of Bitcoin, the value of the cryptocurrency may plummet. Basic Economics class teaches that the higher the demand for an item, the higher its value. The same happens in the financial world, and the blockchain market is not left out.
• Massive adoption of the cryptocurrency
A key aspect of digital assets based on blockchain technology is their use cases. Popular cryptocurrencies have intriguing use cases attached to them. Polygon offers scaling solutions, while Ethereum allows developers to create innovative decentralized apps in its blockchain. When a cryptocurrency offers groundbreaking innovations, the likelihood of being massively adopted in the future is high. A high adoption rate could affect its prices.
The intrinsic value of crypto and its common usage by people are valid reasons that it is revered. Many tend to love the innovations that blockchain technology offers because it allows them to break free from the red tapes that have been put in place to checkmate the traditional financial system. Apart from the aforementioned, many cryptos offer their users an easy medium of exchange that doesn’t come with slow transaction speed or high transaction costs.
• Presence of news
When some governments like the Chinese government were clamping down on Bitcoin mining and its operation in 2021, its price plummeted. News concerning crypto could plunge or skyrocket its value like what is obtainable in the financial markets when instruments such as stocks are concerned.
If news of a crypto founder caught with their hands in the cookie jar, trying to carry out a rug pull gets to the crypto community, there is a great chance that its value may plummet.
• Scarcity of a crypto
Bitcoin has a maximum supply of 21 million with a total supply of 18,780,687 at the time of writing this article, according to coinmarketcap.com. Only over a million new Bitcoins can be mined. One reason that Bitcoin is valued is its scarcity. When one compares a crypto with more scarcity to those that have a maximum supply that runs into trillions, there is a great chance that the value of the latter may not rise like the former.
The value of a crypto on P2P exchanges like Whalesheaven is affected by many factors, which have been discussed above. Trading digital currencies for bitcoin and other cryptocurrencies can be done seamlessly on Whalesheaven.